What Is Business Bankruptcy?

Business is all about highs and lows. And though most ventures succeed, others experience financial setbacks that seem insurmountable. If your company is swimming in debt and can’t seem to keep its head above water, bankruptcy could be the fresh start you’re looking for. But what is business bankruptcy, and how does it work?

Business bankruptcy is a court procedure that assists companies with excessive debt either:

Restructure and continue operations, or shut down and liquidate assets in an orderly way.

Types of Business Bankruptcy

The U.S. Bankruptcy Code offers several options, depending on the type of business and your financial goals. The three most common are:

Chapter 7 Bankruptcy: Liquidation

Businesses with no path to recovery. Chapter 7 shuts the business down. A court-appointed trustee sells off assets to pay creditors. After that, the business is typically dissolved.

Chapter 11 Bankruptcy: Reorganization

Most suitable for Corporations, LLCs, or partnerships that wish to remain in business. Chapter 11 enables the company to continue in business while reorganizing debts under a plan approved by the court. It’s messy and costly, but it provides big businesses with the time to recover. Keeps the business alive, and debt payments can be renegotiated. But it’s time-consuming and has expensive legal and administrative fees.

Subchapter V of Chapter 11 (Small Business Reorganization Act)

This is ideal for small businesses seeking a quicker, cheaper Chapter 11.

This new alternative simplifies the process for qualifying small businesses (with a certain debt threshold). It eliminates much of the expensive barrier of regular Chapter 11. The advantages are less costly than a regular Chapter 11. Easier to suggest and approve a payment plan. The disadvantage is that it is only for businesses that qualify.

Is Business Bankruptcy the Right Step?

Here are some signs it may be time to consider it:

• You’re in arrears on payroll, rent, or supplier payments.
• Your debt is increasing more rapidly than your income.
• Creditors are issuing threats of lawsuits or collections.
• You’ve tried all other financial options (loans, restructuring, etc.).

Bankruptcy is not a failure—it’s a tool. The proper kind of filing can restore your control, salvage what you can, and begin anew. Whether you want to reorganize and keep going, or wind things down with grace, you don’t have to go it alone.

This post was written by Trey Wright, one of the best bankruptcy lawyers in Pensacola FL! Trey is one of the founding partners of Bruner Law Firm, specializing in bankruptcy law, estate planning, and business litigation.

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